FYLSX Defenses to Contract Enforceability 4 — Questions and Answers
Question 1: A contract between a licensed contractor and a homeowner is unenforceable because the contractor lacked the required state license at the time of contracting. This is an example of:
- Mutual mistake making the contract voidable
- Illegality based on a licensing statute designed to protect the public (Correct answer)
- Failure of a condition precedent
- Unconscionability due to unequal bargaining power
Correct answer: Illegality based on a licensing statute designed to protect the public
Contracts violating licensing statutes enacted for public protection are generally unenforceable, while violation of revenue-raising statutes may still allow recovery.
Question 2: A contract provision states that in the event of any dispute, the consumer must travel to a distant city for mandatory arbitration and waive all class action rights. A court examining this clause for unconscionability would focus on:
- Whether the consumer had alternative suppliers and could have negotiated differently
- Both the oppressive terms (substantive) and the absence of meaningful choice (procedural) (Correct answer)
- Whether the arbitration clause complies with federal arbitration law requirements
- Only whether the consumer read and understood the provision before signing
Correct answer: Both the oppressive terms (substantive) and the absence of meaningful choice (procedural)
Courts evaluate unconscionability based on both substantive elements (oppressive terms) and procedural elements (lack of meaningful bargaining opportunity).
Question 3: Under the UCC, which of the following oral contracts for the sale of goods does NOT require a writing under the Statute of Frauds?
- A contract for the sale of 500 custom-engraved trophies for $800 (Correct answer)
- A contract for the sale of a used car for $600
- A contract for the sale of 100 widgets at $5 each
- A contract for the sale of a diamond ring for $2,000
Correct answer: A contract for the sale of 500 custom-engraved trophies for $800
Under the UCC, specially manufactured goods not suitable for sale to others in the ordinary course of business are exempt from the writing requirement even if over $500.
Question 4: An adult enters into a contract while adjudicated mentally incompetent with a court-appointed guardian. The contract is:
- Voidable at the adult's option upon regaining competency
- Enforceable if the other party did not know of the incompetency
- Void because adjudicated incompetents lack legal capacity to contract (Correct answer)
- Enforceable for necessaries regardless of mental capacity
Correct answer: Void because adjudicated incompetents lack legal capacity to contract
A person who has been adjudicated mentally incompetent by a court lacks legal capacity, making any contract they enter into void, not merely voidable.
Question 5: A minor disaffirms a contract for the purchase of a motorcycle. The seller demands the minor return the motorcycle, which has been damaged in an accident. Most courts would hold that the minor:
- Must pay the full purchase price as a condition of disaffirmance
- May disaffirm and return the motorcycle in its damaged condition without further liability (Correct answer)
- May not disaffirm because the damage shows the contract was executed
- Must pay the reasonable value of the use of the motorcycle before disaffirmance
Correct answer: May disaffirm and return the motorcycle in its damaged condition without further liability
Under the majority rule, a minor may disaffirm and return the property in whatever condition it is in, even if damaged, and recover any consideration paid.
Question 6: Which of the following is the best defense when a party signed a contract under a unilateral mistake?
- The mistaken party may void the contract if the mistake was so fundamental that enforcement would be unconscionable and the other party had reason to know of the mistake (Correct answer)
- Any unilateral mistake about a material fact entitles the mistaken party to rescind the contract
- A unilateral mistake is never a defense to contract enforcement
- The mistaken party may rescind only if the other party also made a mistake
Correct answer: The mistaken party may void the contract if the mistake was so fundamental that enforcement would be unconscionable and the other party had reason to know of the mistake
Unilateral mistake allows rescission only in limited circumstances: the mistake must be material, enforcement must be unconscionable, and the other party must have known or had reason to know of the mistake.
Question 7: A non-compete agreement requires an employee to refrain from working in any capacity, anywhere in the world, in any industry, for 20 years after leaving the company. A court is most likely to:
- Enforce the agreement as written because it was freely negotiated
- Void the entire agreement as an unlawful restraint of trade
- Blue-pencil the agreement to make it reasonably limited in scope and enforce it (Correct answer)
- Enforce the agreement only for the first year as a reasonable limitation
Correct answer: Blue-pencil the agreement to make it reasonably limited in scope and enforce it
Many courts will blue-pencil or reform an overbroad non-compete to make it reasonable in scope, time, and geography rather than voiding it entirely.
FYLSX Defenses to Contract Enforceability 4
A contract between a licensed contractor and a homeowner is unenforceable because the contractor lacked the required state license at the time of contracting.
This is an example of: